impact and implications of covid-19 on the group insurance … · 2020. 11. 21. · more than 10%...

1 | as of April 2020

Impact and implications of COVID-19 on the Group insurance industryHow can Group insurers combat the current crisis and prepare for the future?

October 2020

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3 | IntroductionPerspectives on what is shaping the market

7 | Responding to the crisis in the near termFixing domains most severely stressed

9 | Recovering as economic activity picks upMaintaining margins in a declining revenue environment

20 | Thriving in a postpandemic futureBusiness model for the future given the impact of COVID-19

33 | AppendixSupplemental reference material

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Table of contents

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Group insurers have been faced with new challenges, and an amplification of prior challenges, as a result of COVID-19. For years, the industry has been grappling with low interest rates, the impact of rising medical costs, slowing client demands, and high competition for wallet share. Group insurers have been less digitally focused than their counterparts in the health insurance and retirement segments, and COVID-19 has further highlighted this gap, as US unemployment is expected to remain in the high double digits into 2022,1 stressing the traditional growth engine for most carriers. Coupled with the potential for sustained economic disruption and difficulties in accessing medical

“ A downturn is an opportunity to revisit inefficiencies.”

—Emily Oster, economist

professionals for medical underwriting and long-term disability (LTD) claims administration due to near-term focus on COVID-19–related care, the industry will want to respond in ways that will set a foundation for future success in a post–COVID-19 world.

To help insurers respond to this crisis, we have outlined areas that group insurers may want to focus on while navigating different stages of the pandemic. We present a set of forward-looking actions that can help grow the business with marketplace differentiation coming out of the crisis and instill operational excellence in preparation for potential future waves of the pandemic and other disruptions.

Introduction

1 Deloitte analysis, US economic forecast, Q2 2020.

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Executive summaryIntroduction

Operational disruption. Group insurers are dealing with a wide array of challenges within their business operations and are not only focused on managing the current “day-to-day,” but are also actively looking to accumulate an operational surplus that can help their organizations deal with a potential second wave of infections

Sudden workforce virtualization. Carriers have managed the abrupt transition to a 100% virtualized workforce through hastily stood-up infrastructure primarily to maintain business continuity in the near term, which might not be scalable in the long term

Regulatory volatility. Emergent regulatory changes (such as the CARES Act and NY PFL) are forcing carriers to rethink their product mix and long-term profitability potential, juxtaposed with customer demand for relevant products

Lack of encouraging macroeconomic indicators. Uneven recovery and reemployment across sectors and geographies may necessitate a surgical approach to reevaluating the exposure base across case sizes and industry segments, as top-line growth continues to be stressed, and life and disability loss ratios trend upward

Shifting market forces. Greater influence of buyer behavior stemming from increased digital savvy and expectations shaped by experiences in adjacent industries, as well as increasing regulatory oversight of consumer data security, will require a continuous focus on digital evolution

Margin pressure. Rigorous expense control across business domains is essential to maintaining operating margins under current, challenging macroeconomic conditions and may have differing customer, business model, and competitive dimensions

Emerging stronger. Leaders who prioritize a holistic digital transformation strategy that ultimately benefits clients and customers are more likely to be successful in creating lasting change and flexibility to evolve

• Digital capabilities. Building and advancing capabilities across the value chain to accelerate business processes, and meet increasing customer demands for sophistication in engagement

• Innovation. Prioritizing customer retention via a differentiated experience underpinned by flexible, yet tailored products designed to meet pandemic-specific needs

• Operational efficiency. Identifying opportunities for automation to drive down discretionary spending

• Data analytics. Identifying new data sources and partnerships, and investing in advanced analytics

Responding to the crisis in the near term

Recovering as economic activity picks up

Thriving in a postpandemic future

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Irrespective of how the crisis unfolds, the need for contactless technologies and digital experiences will further accelerate digitization

Introduction

Differentiated digital customer experiences have been elusive for group insurers; however, recent events have highlighted the need to accelerate more robust capabilities across the customer life cycle

After the case is setup, employer Sue completes an “Amazon-like” purchasing process with real-time quoting. Products are instantly installed and set up for employees to enroll

After successfully completing the application and interview process, employee Kyle receives an auto-generated offer letter

Through ”one-click,” Kyle can instantly enroll in the products recommended for him based on “employees like him” and his unique eligibility, going through a “no-evidence of insurability (EOI)” experience

Agent Andrea’s compensation is automatically calculated, including allocations for the other sales roles

Kyle logs onto an admin system to update his beneficiary information and shortly afterward receives email confirmation of the update

Sue receives an email letting her know that her bill was automatically paid for the previous month

Sue receives a proactive email before renewal indicating her rates will change and including tailored plan recommendations that may better meet her needs; with “one-click,” she receives a quote and confirms her choice

Kyle submits a claim for a recent injury, consents to release medical records, and immediately receives confirmation that his claim has been approved and payment received

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Introduction

Our framework for enabling resilient leadership in the face of the COVID-19 pandemic

RESPOND RECOVER THRIVEManage business continuity Learn and emerge stronger Prepare for the new normal

As of the date of publication of this POV, most group insurers have passed through Respond and are into the Recover phase of managing the COVID-19 pandemic

As the virus remains active in open and partially open state and local economies, insurers can expect to face a continuing cycle of upswings and downswings in claim volume and premium remittances, hampering a smooth transition from what we call the Respond phase to the Recover and Thrive phases. Nonetheless, they must continue to forge ahead and remain resilient, continually updating their strategies and operating plans with lessons learned in each cycle.

Provide accelerated support and address challenges to achieve operational stability, including activating contingency plans

Focus on protecting margins and improving current service delivery across various business and technology functions

Plan for future operating models, based on the scenarios of a “new normal,” in order to optimize business performance and operational results

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Respond

RespondDuring the virus’s relentless march across the nation, new lockdowns are being imposed by local governments. Carriers have adopted a variety of strategies to respond to the ongoing crisis in order to prepare and manage continuity

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Some immediate actions have been taken by carriers to manage the crisis

Respond

Our conversations with leading

Group insurance executives

have revealed varying degrees

of operational impacts on

several business functions

and illustrate where they are

focusing their resources in

response to the COVID-19

crisis, with carriers aiming to

retain operational surplus to

potentially deal with a second

wave of infections

Shift to a remote workforceFew companies had anticipated a near-100% work-from-home event across the globe or had foreseen this level of disruption. Setting up adequate infrastructure to allow employees to work from home was a challenge, especially for some outsourced offshore operations. Most organizations expended significant effort to overcome this challenge with new learnings to consider when pivoting toward the “new normal” in the future

Virtualization of customer serviceMigrating the traditional call center setup to a virtual environment presented challenges early on. Carriers benefited from having existing interactive voice response (IVR) and self-service capabilities that enabled them to handle employee calls on questions about benefits, paid family leave, and claim submissions

Role of technology to maintain business continuityTechnology decision-makers in every organization have already made significant choices to respond to the COVID-19 pandemic with speed to maximize the safety of employees and ensure continuity of business. In the longer term, the quick fixes and patchwork solutions adopted during the response phase may not stand up to rigorous testing

Coordination with brokers and third partiesFunctions that involve coordination with brokers and third parties (for example, channel management, outsourcing and vendor relationships, provider management, and enrollment) have experienced the most disruption. However, as all partners have eased into remote work, most carriers have not experienced major disruption of any of their functions in the medium term

Regulatory and compliance pressuresThe regulatory and compliance impact has been relatively high in the recent past. Carriers continue to monitor emerging regulatory changes and legislation that will affect their premiums and margins, as well as benefit offerings in the long term (such as the CARES Act and and NY Paid Family Leave)

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Recover

RecoverAs the ongoing pandemic threatens a quick economic rebound creating uncertainty about the dynamics of labor markets, how should carriers think about maintaining their operating margins in a declining revenue environment to emerge stronger?

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The pandemic has affected consumer spending and GDP and created uncertainties that make it difficult to predict the future

Recover

GDPLikelihood of a slow recovery in certain industries and geographies, and GDP at a substantially lower level than the pre–COVID-19 trend suggested. Our baseline forecast is that recovery may not get to robust levels until widespread availability of an effective vaccine - sometime in 2021, and growth rates may not return to pre-pandemic levels until 2022 due to higher spending and lower productivity.

Top-line growthDeclining top-line growth of up to 10% coupled with a reduction of 50–60% in overall earnings, especially in certain sectors (such as transportation, hospitality, and retail) and certain geographies.

Loss ratiosHigher loss ratios expected for life (in 2020) and LTD (in 2021), while lower loss ratios are expected for dental. The previous recession in 2008 was accompanied by deteriorating morbidity that lagged the ensuing economic recovery.

Work and workforce virtualizationMore than 10% of insurance jobs to become fully virtual, with low expectation of repatriation of outsourced jobs.

Real estate expenseNearly 60% of carriers expect at least 10% reduction in commercial office space (lowering costs).

UnemploymentWill likely remain in the double digits for certain sectors into 2022, further dampened by the austerity measures imposed by state and local governments. However, per our baseline forecast, the economy reaches full employment by 2025, boosted by efforts to reshore parts of the supply chain.

Consumer spendingA sudden and continuing decline in consumer spending exacerbated by the loss of the $600 supplement to unemployment insurance; in the longer term, the pandemic is expected to worsen existing consumer problems (e.g., income inequality, underinsurance, and low retirement savings). Lower-income households are less likely to have health insurance, especially after layoffs, and more likely to have the health conditions that complicate recovery from COVID-19.

Macroeconomic indicators1 Potential impacts on Group insurance industry2

1 Deloitte analysis, US Economic Forecast, Q3 2020.2 Discussions with Group Presidents and leaders.See Appendix for a year-over-year comparison of several economic indicators.

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Because of the crisis, some market forces may accelerate, while others may decelerateImpact Market forces1

Recover

Carrier M&A. Activity is likely to decrease as companies focus on keeping businesses and employees safe, due to continued market volatility and to low interest rates, that make valuations increase

Broker power. As quoting activity has diminished due to fewer face-to-face meetings, with customer focus moving to more burning issues and carriers making pronouncements extending existing rates for another year, brokers are finding it difficult to demonstrate their value to their clients

Ecosystem. Carriers may look to consolidate their partnerships with players that provide the maximum value

Share of wallet. As employers shift cost and risk to employees, gaining share of wallet for nonmedical carriers will become increasingly difficult

Customer expectations. Under current conditions, customers are wary of face-to-face meetings, which is further increasing demand for personalized, digital, and omnichannel services, such as telemedicine

Future of work. How and where employees engage with one another is likely to be completely transformed through this moment, driving differences in how work gets done and the nature of the risk being insured

Data and analytics. Longitudinal data and predictive risk assessment technologies have become essential to enable business as usual InsurTechs. There will be more demand for innovative solutions as companies seek to accelerate digital initiatives and flexible ways of work New entrants. With timing of recovery and future customer behavior as unknowns, there is limited threat from new entrants

Paid family leave. Employer-specific leave regulations continue to evolve as a response to the current pandemic

Data privacy and security. Secure exchange and management of sensitive customer data through various digital channels and mitigation of potential increases in fraudulent activities are key priorities

November election. Outcome of presidential and congressional elections may further influence the direction of spending

Competitive environment

Buyer behaviors

Innovations

Regulatory landscape

Increasing importance Decreasing importance No change

1 These are the market forces most commonly mentioned during GIBS interviews in mid-2019.

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Premium growth is expected to be uncertain as the economy recovers, requiring rigorous expense control to maintain margins

Recover

Carriers will need to identify key hotspots, construct a list of cost take-out opportunities, and build a road map of short- and long-term initiatives, supported by a business case…

…while continually assessing impacts and implications of tactical digitization and operational improvements across three main internal and external dimensions as market conditions evolve

Customer implicationsKey aspects • Impact on premium volumes due to unemployment and consumer spending • Customer experience and expectations • Customer loyalty and trust • Customer adoption of digital

Competitive implicationsKey aspects • Impact on channels and brokers • Changes in products and services being offered by competitors to meet new customer needs • Business and technology investments being made by competition • Emerging ecosystem forces (such as tech players, InsurTechs, and corporate ventures)

Business model implicationsKey aspects • Management of the workforce • Changes in product, pricing, and underwriting to innovate and manage risk • Servicing expectations and needs • Management of regulatory changes

In the short and medium term, the emphasis is on maintaining continuity of operations through targeted spend reduction, as well as laying the foundations for sustained operational excellence in the future

Longer-term, carriers will have to invest in operating model changes, including processes and technology, to not only ensure business continuity, but also emerge ahead of the competition

Additionally, virtualization of the largest internal cost drivers pertaining to claims operations, customer servicing, and IT support teams, will yield significant cost savings on real estate expense

Carriers may incur short-term expenses to enable full workforce virtualization (e.g., enhancing network infrastructure, investing in collaboration tools, and ergonomic work-from-home environments) and enhance employee productivity

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Customer implications • Increase in queries on definition of disability product features and benefits

• Increased costs for carriers to innovate in new voluntary products as employer-funded benefits dry up

Competitive implications • Market pressure and potential backlash for dental carriers not refunding premiums

to customers when some carriers have already done so

Business model implications • New product innovations and introductions continue to be slow and expensive due to

challenges with legacy processes and technologies

Product features and pricing may need to be modified to manage customer expectations, claims patterns, and loss ratios

Recover

COVID-19–related industry trends: • 15% of employers anticipate moderate to significant cost-cutting measures for

their benefits programs; 17% are looking to add or expand voluntary benefits1

• Uncertainty in carriers’ mortality and morbidity risk exposures across product lines

• Loss ratios for LTD in 2020 and 2021 are forecasted to be higher

• Loss ratios for dental are forecasted to be lower than 2019 to 2020, but claims are ramping up faster than expected

• Some dental carriers are refunding a percentage of premiums to their customers

Product management

Consider definitions of “actively at work” and whether aspects such as working from home and furloughing ought to be considered in a redefinition

Work with employers to offer product benefit designs that mesh with the reality of employees’ lives and circumstances and a renewed focus on health and financial well-being

In the future, build minimum loss ratio provisions into products, especially into dental, for clarity on how much premium needs to be refunded

Rationalize current product portfolio and build new products that are simplified, streamlined, and have a modular and configurable architecture, including a modular rate structure

1 June 1, 2020, survey of 505 employers conducted by benefits consulting firm Mercer.

Key opportunities for carriers to implement tactical digitization opportunities, improve business performance, and control costs in the medium term13

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While demand is expected to be down, there will also be challenges for sales and underwriting teams to effectively engage with prospects

Recover

COVID-19–related industry trends: • High unemployment driving down premiums

• Reduced ability of employers and employees to afford broad-ranged nonmedical benefits, especially in the middle and small market, as well as in some specific industries like travel and hospitality

• Negotiation of renewals becoming challenging with competitive pricing, grace periods, and rate freeze pressures

Customer implications • Increased top-line pressure associated with continued employee reduction efforts by

employers, even as more work is automated

• Increased focus toward customer retention and service may drive up costs

• Revenue growth through cross-sell and upsell expected to decline, as affordability of benefits becomes a key consideration for employers and employees

Competitive implications • Independent and small brokers may need additional technology capabilities and support

from insurers

Business model implications • Need to assess impact on business based on exposure to certain industries (such as travel and

hospitality) and geographies (such as New York and New Jersey) heavily affected by COVID-19

Review broker and sales rep compensation to confirm it is at target level vis-à-vis competitive marketplace for talent and overall business expense management objectives

Prepare to take action on expenses while balancing the impact on channel partners, particularly smaller brokers

Optimize lead and sales generation efforts using data insights to maximize returns

Manage mix of business (exposure to industries, geographies, mortality, and morbidity risk of underwritten population); assess underwriting rules and reinsurance strategies to account for changes in conditions affecting overall risk tolerance

Sales and underwriting


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With reduced payrolls and a majority virtual workforce, the enrollment experience must change to promote benefits adoption

Recover

COVID-19–related industry trends: • Challenges affecting the prospecting of new business are also drivers of new

account enrollment, as a shrinking pool of potential enrollees increases the pressure to improve the level of participation

• Continuing support from the federal government for employers (such as Paycheck Protection Program loan filing extension) can offset the loss in premiums by encouraging businesses to retain and/or hire staff

• Inability to meet in person and related operational challenges with medical underwriting (invasive in-person testing)

• Increased awareness of the need for financial protection (e.g., Google search trends for life insurance are 25–50% higher in 2020) with an ignited shift toward digital engagement as customers across the age spectrum gain the confidence and desire to transact digitally

Customer implications • As employers shift more risk and cost to employees, benefits education and

employee engagement to drive up enrollment and gain share of wallet will become increasingly important

Competitive implications • Lower ROI associated with relationships with third-party enrollment firms as operating

leverage increases when enrollment volume declines

Business model implications • Lower medical underwriting decision velocity caused by delays in obtaining medical records

may result in loss of business to competitors

• Increased expenses related to investing in all-digital enrollment capabilities as the pandemic continues to surge throughout the nation, limiting the possibilities of in-person campaigns

Evaluate services offered by the various enrollment and benefit technology firms, understand their service delivery model and value, and understand overlapping capabilities to rationalize partnerships and reevaluate and rationalize fees, as well as internal costs

Supplement enrollers with video and messaging apps and digital tools to conduct face-to-face digital meetings for effective education and communication of the value of Group insurance products to employees, especially during current times

Explore providing temporary coverage, accelerated underwriting using longitudinal data, and electronic health record–based programs within risk tolerance levels to minimize impact on enrollments

Enrollment


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In a recovering economy, books of business will change rapidly and require an agile model for administering client policies

Recover

COVID-19–related industry trends: • Increased volume of census updates triggered by employee payroll reduction

efforts, including layoffs and furloughs

• Higher demand for benefits portability from employees being laid off or furloughed

• Pressure to digitize paper files to maintain operational continuity while continuing to work virtually

Business model implications • Increased pressure to spend on modernizing core policy administration technologies that

do not serve the new environment effectively

• Potentially higher labor expenditure in the short term to handle spikes in transaction volume

• Higher error rates in manual processes (such as manual data entry and rekeying of data) due to additional stress on internal staff, owing to surge in administrative activity, leading to increased cost of reconciliation

Transform operations through use of disruptive technologies (digital, analytics, intelligent automation, cloud) to streamline processes and build capabilities in line with business strategy and customer impact

Use data insights (benchmarking, internal) to identify functions and capabilities with high cost, limited customer impact, and competitive differentiation. Review in-house capabilities and explore outsourcing strategies to decide what capabilities should reside where to manage costs effectively without losing market competitiveness

Policy administration


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The twin economic and pandemic crises will exacerbate the stress on carrier financials and ability to service customers

Recover

COVID-19–related industry trends: • Spikes in premium defaults and policy lapses, as well as requests for credits and grace

periods from employers, leading to increased impairment on financial accounting front

• Employers less focused on benefits shopping and consumed by efforts on their own recovery, including adhering to public health guidelines for their own customers and employees

• Delays in processing premium remittances that come in through paper checks from nondigital clients due to virtualization of insurer workforce

• Highly variable census (due to employment variability as Paycheck Protection Program loans are exhausted) requiring frequent recalculations of monthly premiums due, increasing reconciliation efforts

Customer implications • Increased persistency for carriers because of employers’ lack of focus on finding

alternate carriers

• Increased expenses related to digitization of receivables process, including implementing digital payment options

Business model implications • Increased pressure to spend on modernizing billing and premium accounting technologies

that can scale up to current transaction demand

• Uncovered losses due to premium defaults

Build and provide digital self-service capabilities for all routine tasks such that account managers are able to focus on relationship management to continue building loyalty and trust for retention and growth of existing accounts during these challenging times and beyond

Leverage this opportunity to improve digital adoption among customers and improve ROI for digital capabilities

Consider billing in arrears rather than in advance. With the time value of money at historical lows, benefits of accurate billing outweigh the slight delay in payments

Build integrations with employers and third parties for automatic exchange of census information

Account management and employer services


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A rapidly evolving regulatory climate, coupled with increased incidence rates of leaves and claims, will stress claims operations

Recover

COVID-19–related industry trends: • Delays in verification and adjudication of claims requiring medical records and reviews

• Potentially volatile mortality and morbidity rates

• Shift in risk exposure on a temporary basis, as leaves and disabling events are now covered under federal law due to CARES Act. NY Amendment of PFL definition of serious health condition includes COVID-19

• Service request volumes spiking with increase in overall employee inquiries (especially on claims and leaves) across channels

• New digital ways of working more important than ever before to keep communication channels with customers open

Customer implications • Impact on ability to adjudicate and manage return to work and Social Security Disability

Insurance outcomes affecting claims duration and customer satisfaction

Business model implications • State legislation, such as NY PFL, may require carriers to pay for COVID-19 claims with no

commensurate increase in premiums

• Potential increase in disability claims fraud

• CARES Act could open the door for a federal paid family leave program, without private options, affecting a key component of a comprehensive employee benefits offering

Build claims adjudication capabilities using electronic health records to minimize any delays and customer impact

Fund digital omnichannel self-service capabilities, remote communication, and collaboration technologies to capitalize on the shifting expectations of customers who are more digitally savvy and expect greater personalization

Identify and implement high-impact and high-value claims analytics use cases to automate decisioning, get a lift in risk benefits, and and see a reduction in claims duration (such as claim decisioning, fraud detection, and return-to-work outcomes)

Claims and customer service


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We recommend a coordinated strategy that focuses on the below priorities to emerge from the current crisis positioned for successEvaluate your workforce through the lens of different potential economic recovery scenarios; define areas of the business that may be affected; and outline what scenario indicators will trigger different types of action (such as deploying employees to another part of the business or terminating employees)

Use the shifting external environment (such as slower economic growth) as an impetus to review existing vendor relationships to determine if contracts can be renegotiated, consolidated, or canceled

Determine medium- and long-term real estate strategies in light of potential for increased work-from-home options and the long tail of real estate contracts; determine how existing or planned real estate decisions should be adjusted and the downstream implications for cost and talent (such as removing geographic constraints on some job requisitions)

Take a critical lens to the business benefit of different software and applications (in-house and third-party) and determine if there is an ability to rationalize footprint and reduce expenses

Review the impact of external market conditions on capital allocation decisions and perform scenario analysis on how changes in revenue or investment returns could drive financial decision-making (such as shifting investment mix to improve liquidity)

Analyze the employment and wage growth potential in the current mix of industries, case sizes, and geographies to create a segment-specific strategy for managing expense

Carriers can leverage this crisis as an opportunity to create financial capacity from cost-reduction efforts and to tactically fund digital initiatives, which in turn can lead to further cost efficiencies, feeding a continuous cycle of savings and innovation.

Recover

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Thrive

ThriveCoupled with near-term operational challenges, the pandemic is also hampering growth and profitability, reinforcing the urgency of accelerating product innovation and digital transformation efforts so that carriers are prepared to reap the twin rewards of operational efficiency and durable premium growth in the next normal

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The Group insurance industry was already facing several strategic threats, requiring carriers to think differently about the future…

Thrive

COVID-19 is creating

new uncertainties. Crisis

responses will reflect

leadership risk tolerance

and growth ambitions

going into recovery.

IndustryPoor understanding by employees of nonmedical benefits and diminishing value proposition of core products to younger, less affluent segments

MacroeconomicUncertain economic climate threatens GDP growth and employer payrolls, which has a direct impact on carrier premium growth

OperatingmodelLegacy technology infrastructure, aging workforce, next-gen talent gap

CustomerGenerational change, rapidly evolving behaviors and expectations of consumers, and accelerated adoption of digital

CompetitionCompetitive landscape evolving and disruptive threats looming from new financial services entrants and InsurTechs

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…which have been further exacerbated by the COVID-19 pandemic, magnifying the need for change

Thrive

• Increasingly challenging to source new business: Voluntary and employer-paid benefits become less compelling as recession threatens business viability

• Overall earnings remain depressed due to sustained low-interest-rate environment hurting investment yields; greater margin pressures for the industry

Economic uncertainty caused by prevailing virus

Challenging operating environment for brokers

Elevated expectations around customer experience

Workforce and workplace uncertainty

• Digital propensity of customers is increasing in a COVID-19 environment

• Customers are more likely to use digital channels or interact with carriers digitally; insurers should seize the opportunity to meet rising expectations

• Lack of “in-the-office” engagement between brokers and clients; limited digital engagement tools make it harder for agents to interact with clients

• Insurers will need to consider how they plan and develop training curriculums in concert with brokers to enable new ways of prospecting and servicing clients that are under financial strain

• COVID-19 challenging orthodoxies related to physical presence at the workplace; expected to accelerate trend towards all-remote work and decreasing of physical presence

• Insurers need to evaluate what their future of work and workforce planning will look like to ensure they are finding, retaining, and effectively utilizing top talent and enabling tools to suit their changing needs

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As the industry recovers from the effects of the pandemic, leaders should prioritize retention, growth, and profitability levers…

Thrive

Enhance digital capabilitiesAdvance digital capabilities across the value chain to accelerate business processes and meet evolving customer expectations

Innovate for new normalPrioritize client and customer retention, as they are more sensitive to poor experiences during this period, and tailor products to meet needs during pandemics

Drive operational efficiencyIdentify opportunities for process automation, “variabilize” fixed costs, and drive down discretionary spending

Leverage data analytics and AIIdentify new sources of data and invest in advanced analytics, including new data partnerships

…using an integrated strategy across key functional areas that drives a differentiated customer experience across the value chain

Leverage data analytics and AI

Drive operational efficiency

Enhance digital capabilities

Innovate for new normal

Postpandemic future

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While consumer sentiment has changed as a result of COVID-19, group insurers have an opportunity to close the

gap between expectations and reality

Significant opportunities exist for focused investments across capabilities to ready group insurers for the postpandemic future

Thrive

As part of a cohesive and overarching digital strategy, carriers can launch targeted initiatives that come together to deliver a modern experience for increasingly digital-savvy clients and customers

Product managementExplore opportunities to develop pandemic-specific products likely to be in high demand; track customer demand and develop tailored products that are modular and flexible to achieve “mass customization”

Claims and customer serviceAggressively invest in digital self-service for claimants, including digital claim payment options, using ecosystem partners to streamline processes and provide value-added services

Sales and underwritingOffer financial and operational support to agents and brokers to preserve relationships, and invest in digital ecosystem capabilities that help strengthen pipelines

Account management and employer servicingModernize call-center capabilities to offer a seamless experience across multiple channels that is integrated across the customer life cycle and innovate with tech companies to offer greater digital self-service capabilities

EnrollmentInvest in digital enrollment capabilities, including partnerships with InsurTechs that focus in this space; increase emphasis on employee benefit education to drive up participation

Policy administrationModernize and upgrade core legacy applications and integrate with upstream and downstream systems to facilitate seamless execution of routine policy and case management activities, which will in turn elevate the customer experience

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The pandemic has highlighted the importance of having the right insurance coverage for the right life circumstance

Thrive

Innovate for new normal • As uncertainties about school closures linger and elderly

parents require prolonged care, employers can improve EE productivity by offering (subsidized) benefits for childcare and eldercare by partnering with service providers

• Offering nontraditional products, such as replacement of epidemic exclusions on life insurance policies, by adding riders for death due to infectious disease outbreaks for additional premium can improve top-line growth

• Marketing income protection products that assist customers in paying for higher COBRA premiums due to unexpected layoff may increase top-line growth, as higher health expenses are top of mind for employees. Novel products that extend and protect individual incomes triggered by proven unemployment may alleviate pressure on stressed government finances

Product management

Drive operational efficiency • Linking responsible customer behavior to discounts on

voluntary products may mitigate public health risk, lower COVID-19–related short-term disability and life claim frequency, and incentivize enrollment

• Consolidating similar products onto a common chassis may allow for a reduction in servicing costs related to each variant, as well as improve flexibility to provide the appearance of customization

• Providing inputs into and staying abreast of upcoming legislation (such as evolving Paid Family Leave laws) will enable carriers to take preemptive steps to nimbly modify their business model and remain compliant

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Prioritized levers and investment opportunities

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Thrive

Enhance digital capabilities • Accelerate opportunities for process automation (such as broker

self-service for quoting, proposal generation, compensation inquiries, and electronic remittance of commission payments)

• Supplement sales reps and smaller brokers with end-to-end digital omnichannel tools and data-driven ideas and insights that allow them to effectively engage with customers remotely and grow their books of business

Drive operational efficiency • Build deeper integrations with broker partners with highly

automated, frictionless, and collaborative processes to make it easy to do business with customers

• Incorporate an outside-in perspective and voice of the broker to design and cocreate a simplified experience with and for them

• Consider invoking the medical underwriting process in fewer circumstances by predetermining the risk for all employees based on lifestyle and third-party data so that the carrier only pursues the most qualified and desirable customers, decreases risk dramatically, and eliminates customer inconvenience

Sales and underwriting

Leverage data analytics and AI • Consider implementing advanced integrations for real-time

insights (e.g., Google Assistant allows brokers to inquire about real-time status of underwriting decisions or ask when next compensation will be paid)

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Thrive

Enhance digital capabilities • Invest heavily in omnichannel digital enrollment

capabilities to provide all-access, personalized experiences that meet employees wherever, whenever, and however they want

Innovate for new normal • Invest in building guided selling capabilities at

enrollment, providing the best and most personalized advice to employees, highlighting criticality of benefits during ongoing and recurring epidemics

Drive operational efficiency • Pursue ecosystem partnerships (such as integrations

with HR and BenAdmin systems) to enable hassle-free and instant exchange of data

• Experiment with relaxing rules about traditional enrollment windows and combine with innovative partnerships to sell products on demand

Enrollment

Leverage data analytics and AI • Use data insights and behavioral science

to engage employees, providing high-touch, personalized service and guidance based on their individual circumstances and life events





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Thrive

Drive operational efficiency • Maintain a single product catalog, ensuring a single

source of truth, and facilitate design and construction of products to streamline underwriting and servicing

Policy administration

Leverage data analytics and AI • Set up a process for employers to define data

requirements up front based on their specific needs, eliminating the need to configure complex customer hierarchies

• Get digital consent from employers for their third-party administrators (TPA) to share data. Build an integration infrastructure with TPAs to send and receive data. Receive automated eligibility and data updates in real time via integrations with TPAs

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Thrive

Enhance digital capabilities • Enhance digital and self-service capabilities for servicing

using feature-rich and intuitive employer portals

• Reevaluate and modernize call center capabilities to deliver consistent experience across multiple access channels

Account management and employer service

Innovate for new normal • Anticipate special needs arising from the pandemic.

Reconsider policies for flexible payment terms and methods to prioritize client retention

• Offer expanded and multiple channels of premium remittance (including mobile) instead of just paper and EFT to ease employer experience

Leverage data analytics and AI • Provide employers and brokers a holistic view of

their data through self-service channels and across any dimension they choose (e.g., billing branches, claims branches, geographies, and classes)





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Thrive

Enhance digital capabilities • Implement digital payment capabilities across multiple options to

accelerate benefits delivery

• Implement innovative technology solutions and accelerate digital adoption (e.g., integrate with digital assistants to enable claimants to ask for real-time updates on claim status and receive real-time responses and notifications of claim approval and payment)

• Consider investing in digital tools and analytics to enable intelligent decision-making in claims management and improving return-to-work outcomes

Claims and customer service

Innovate for new normal • Customer loyalty and share of wallet for products may be challenged

as individuals are more sensitive to poor experiences and prioritize their savings and investments. Generate goodwill by delivering empathetic service to customers, including clear explanation of benefits via enhanced training of claims staff

Leverage data analytics and AI • Use ecosystem partners to improve fraud detection

capabilities to account for greater frequency and new types of fraud

Drive operational efficiency • Consider fully automating routine claimsLeverage data

analytics and AI




30


31

Carriers should consider revising their business models for long-term prosperity—both their own and that of their clients and customersIn order to thrive in the longer term, well beyond the end of the pandemic, Group insurance carriers should aim to focus on the following:

• Digitizing the customer experience, providing self-service capabilities and tools that are designed to enable employers, employees, and brokers to engage in an entirely virtual environment

• Achieving mass customization through configurable products that enable speed and flexibility and support higher levels of automation across the value chain

• Transforming middle- and back-office processes to increase productivity and keep costs manageable, leveraging a complement of integrated, intelligent technologies that deliver seamless operations

• Enable data-driven business outcomes, improving customer intimacy and decision-making across the end-to-end value chain

“The greatest danger in times of turbulence is not turbulence itself, but to act with yesterday’s logic.”

–Peter Drucker

Thrive

32

AuthorsTeam and acknowledgements

Additional thanksThe project team expresses gratitude to the following for their contributions and support:

Amy Allen, principal, Deloitte Consulting LLP Karl Hersch, principal, Deloitte Consulting LLPPeter Migliorato, principal, Deloitte Consulting LLP

Bernard Tubiana, principal, Deloitte Consulting LLPMark Yoest, managing director, Deloitte Consulting LLP Emily Yoo, principal, Deloitte Consulting LLP

William Mullaney US Group Insurance Subsector leaderDeloitte Consulting [email protected]

Brian GalbraithInsurance StrategyDeloitte Consulting [email protected]

Anshumita SenInsurance Strategy and OperationsDeloitte Consulting [email protected]

Debjani KonarInsurance Operations TransformationDeloitte Consulting [email protected]

Deloitte project team and acknowledgements

33

Appendix

Supplemental material

34

US economic forecastAppendix

Employment in most industries has fallen by more than 10%, though most of the impacts are to businesses related to entertainment, food service, and accommodation that don’t lend themselves well to social distancing

% year-over-year unless mentioned otherwise

History Forecast

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

GDP

Real GDP 2.5 3.1 1.7 2.3 3.0 2.2 -6.4 -1.7 5.2 4.9 2.7 2.2

Labor Markets

Average monthly change in employment (thousands) 214 240 210 188 192 170 -891 -158 513 492 217 60

Unemployment rate (percent) 6.2 5.3 4.9 4.3 3.9 3.7 9.2 10.0 8.1 5.7 4.3 4.0

Employment-to-population ratio (percent) 59.0 59.3 59.7 60.1 60.4 60.8 55.7 54.6 56.8 58.9 59.7 59.6

Income and Wealth

Federal funds rate 0.13 0.14 0.39 0.97 1.78 2.16 0.42 0.13 0.13 0.13 0.31 1.06

Consumer price index 1.6 0.1 1.3 2.1 2.4 1.8 1.3 1.8 1.8 2.2 2.0 1.9

Net household wealth (USD trillions) 88 91 96 105 106 117 110 112 124 137 140 142

Personal saving rate (percentage of disposable income) 7.3 7.5 6.9 7.2 7.8 7.5 18.7 17.0 14.1 11.0 9.0 7.7

35 | as of April 2020

About this publicationThis publication contains general information only, and none of the member firms of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collective, the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

About DeloitteAs used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte USA LLP, Deloitte LLP and their respective subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2020 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited

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